Lack Of Insight Causing Companies To Miss Huge Dimension Of Business Performance, Says Rob Markey

"Looking at a company's income statement to understand its financial performance is basically the same as staring at a two-dimensional projection of a 3D object in space. So much information is missing that you can barely tell what's really going on," says Rob Markey, Founder of Bain & Company’s Customer Strategy & Marketing Practice.

For more than 30 years, Markey has been fighting a two-front battle to change how businesses view success. Instead of focusing solely on income statements, he urges companies to measure, manage, and grow the value of their customer relationships, as companies with better-satisfied customers grow faster and deliver better shareholder returns. On one front of the battle, he exhorts companies to measure and manage the financial indicators of customer base health and value. On the other hand, he advocates for changes in financial disclosures rules that would standardize the reporting of customer value drivers for public companies.

Often, neither investors nor business leaders have access to information about the value of a company's customer base. Traditional accounting doesn't reveal changes in underlying customer behavior. As a result, many executives regress to short termism. When their job is on the line, many of them understandably regress to long standing financial management practices, because it’s the path of least resistance, and often the only way to ensure their livelihoods and reputations are intact. 

One of Markey’s chief enemies is a long standing set of business practices and habits that are codified in public company accounting rules, known as generally accepted accounting principles (GAAP). These long-ingrained practices create incessantly irrepressible forces Markey likens to ‘gravity’. According to Markey, this includes the pressure to cut costs without regard to the impact on customers, as well as the pressure to raise prices and find new sources of revenue that are exploitative, such as hidden and nuisance fees. 

The exceptions, companies that have devoted themselves to creating long term customer value, tend to be led by what Markey calls visionary CEOs, such as Jim Sinegal of Costco, David Thodey of Telstra or Jorgen Vig Knudstorp of LEGO. These CEOs declare from day one that they will direct the company towards a customer-centric strategy. They generally deliver great results during their tenure. The problem? There is no guarantee that the next leader will be similarly focused on customer-centricity.  

In fact, the forces of business gravity often drag their successors back toward traditional financial management of income statements and functional budgets.

“Despite early victories, companies end up giving up ground to the P&L income statement and the functional budget. That's when I get called back to do the second version of the same project to, once again, align the company towards customer loyalty,” Markey says. “While that’s good for us consultants, it’s terrible for the company, for its employees, for its customers, and for the world, really.” 

In order to integrate the customer loyalty paradigm into an organization for the long term, Markey says there must be fundamental changes to its internal processes, which are codified into how it operates and the metrics it uses. The new processes must also clearly demonstrate to leaders, as well as everyone within the organization, how their actions influence customer outcomes that result in revenue growth. 

In his work with Bain, Markey helped create a benchmarking service called NPS Prism, as he was dissatisfied with current methodologies for measuring Net Promoter Scores. This allows companies to get unbiased NPS scores for themselves and their competitors using data gathered through double blind market research. Importantly it also links those scores to financial performance and identifies the most important drivers of competitive differences. 

At the heart of his approach to helping companies remain customer-centric is a full system of measuring and managing customer loyalty that combines benchmarks like NPS Prism with customer-based financial reporting. He believes that every leader needs a financial dashboard that begins with the drivers of customer value: new customer acquisition, purchase velocity, purchase volume, cross-sell, and service intensity. These metrics must be prominent and visible.

Markey says he was inspired by sitting in the back seat of a Toyota Prius. He observed that the driver paid immense attention to the large energy monitor display on the car’s dashboard that shows the energy going from the brakes into the car’s battery. The driver seemed to be playing a game of how to maximize the performance of their car. No one had told the driver to do this. But the prominence of the display that linked actions to outcomes was compelling. 

“The regenerative braking gauge was intentionally designed and positioned to be as visible as possible, so using it became second nature to the driver,” Markey says. “It's not like the speedometer, the tachometer, and the oil and gas indicators aren't important – they still are. A car should never run out of gas, just as a business should not go over budget. But, with this added display, the driver can make the entire machine perform better. For a company to make foundational, long-lasting changes to how it measures success, it should have an established methodology that allows it to see how its actions affect customer loyalty, and this allows a leadership team to finally see the business in three dimensions, rather than just two."

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